SEBI has permitted Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) to issue depository receipts to foreign investors. This change aims to expand access to global capital for funding infrastructure and real estate projects. The regulator has explicitly barred Indian residents and NRIs from holding these instruments to ensure regulatory compliance.
The Securities and Exchange Board of India (SEBI) has introduced a new framework allowing Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) to raise capital through depository receipts from international markets. This regulatory shift provides these trusts access to deep pools of foreign capital, which can support their expansion and funding requirements beyond the current reliance on domestic investors.
A depository receipt is a financial instrument that allows foreign investors to hold shares in an Indian company or trust without directly purchasing units on the Indian stock exchanges. By issuing these receipts, REITs and InvITs can potentially attract global pension funds and long-term institutional investors, which may provide more stable and diverse funding compared to domestic retail or institutional sources alone.
To prevent potential misuse of this facility, SEBI has implemented strict guardrails. The regulator has prohibited Indian residents and Non-Resident Indians (NRIs) from holding these depository receipts. This measure is designed to avoid risks such as round-tripping or circular trading, ensuring that the mechanism remains focused on attracting genuine foreign capital rather than facilitating domestic capital flight.
Along with this funding access, SEBI has made operational adjustments to provide these trusts with more flexibility. Trusts are now permitted to acquire minority stakes in under-construction infrastructure or real estate projects, provided they stay within specific exposure limits. Additionally, the regulator has redefined what qualifies as remote common infrastructure, broadening the scope of assets these trusts can hold. Changes have also been made to the cooling-off periods for offers for sale, which may simplify the process for trusts looking to raise capital through the market.
For investors, these changes signal a move toward more flexible and globalized operations for REITs and InvITs. The primary benefit is the potential for lower borrowing costs and better capital availability for long-term projects. However, investors may want to monitor how trusts utilize this newfound access to capital. Increased reliance on global funding can introduce foreign exchange risk and sensitivity to global interest rate movements. Furthermore, the success of these fundraising efforts will depend on the trust's ability to attract foreign interest and the overall health of the underlying infrastructure and real estate assets. The next key monitorable will be how individual trusts integrate this facility into their growth strategies and whether it leads to tangible reductions in their cost of capital or accelerates the development of new projects.